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Indonesian family offices: Untapped and unknown
According to a survey of more than 3,200 high-net-worth families conducted by Williams Group Wealth Consultancy, around 70 percent of wealthy families lose their fortune by the second generation, and 90 percent by the third.
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As high as the sky: BCA Tower stands out on Jakarta’s thoroughfare Jl. Thamrin just near Hotel Indonesia traffic circle on Dec. 18, 2016. Djarum Group, the cigarette giant belonging to the Hartono family, acquired BCA, the country’s largest private bank, in 2002 through Farindo Investments Ltd. (kompas.com/Alsadad Rudi)
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Chinese proverb goes, “fu bu guo san da”, which means the wealth of a family does not last beyond three generations. It is not without reason that most families have difficulty preserving their wealth across generations.
According to a survey of more than 3,200 high-net-worth families conducted by Williams Group Wealth Consultancy, around 70 percent of wealthy families lose their fortune by the second generation, and 90 percent by the third. This generational wealth fiasco occurs mainly because of the failure to adapt to the dynamic changes in business spheres and intense competition among business actors, which requires a shift of strategies and ideas.
In addition, the weight of a hefty inheritance can also be one of the reasons the fortune gets squandered, especially if not being managed properly. Hence, most wealthy families tend to hire external advisors, not only to take care of their family’s wealth but also to undertake the rest of services needed from financial to legal services to fulfill the family’s needs.
As such, these external advisors, which are referred to as family office advisors, serve as the key players in the family’s financial matters, as well as an integrator between the family and external specialists, given their aims to separate involvement for both family businesses and family governance.
The first family office was introduced back in the 19th century in the United States. The trend then became widely known as the number of the high-net-worth individuals (HNWIs) and ultra-high-net-worth individuals (UNHWI) rose significantly over the years. Today, there are over 10,000 family offices scattered around the world, with assets under management worth more than US$6 trillion.
In Asia, the evolution of family offices has skyrocketed in the past five years. Singapore and Hong Kong, the two melting pots of Asia’s financial service industry, have emerged as the frontrunners in the race of family offices in Asia, becoming the most popular jurisdictions among Asian wealthy families to establish family offices. This is not to mention that both countries are the main financial hubs in the region, coupled with a favorable regulatory landscape, business-friendly environment and robust political stability. This has caused the trend to expand rapidly in comparison to other long-established centers for family offices, such as the US.
According to the latest Knight Frank Wealth Report, the Asian region will experience the fastest growth in the number of UHNWIs and HNWIs over the next five years, including Indonesia, in which numbers are predicted to soar approximately 67 percent in the next few years to 2025. This is foreseeable, as family businesses represent 95 percent of companies in Indonesia and are thus perceived as the backbone of the Indonesian economy.
